Thursday, July 31, 2014

Tuesday, July 29, 2014

Corporate Artful Dodgers

Tax Avoidance du Jour: Inversion

Paul Krugman 7/27/2014 OpEd - New York Times

In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. They are entitled to free speech, which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to their workers. Up next, the right to bear arms?

There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.

We’re not quite there yet: The federal government still gets a tenth of its revenue from corporate profits taxation. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s, a quarter or more well into the 1960s. Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.

Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.

The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” Consider the case of Walgreen, the giant drugstore chain that, according to multiple reports, is on the verge of making itself legally Swiss. If the plan goes through, nothing about the business will change; your local pharmacy won’t close and reopen in Zurich. It will be a purely paper transaction — but it will deprive the U.S. government of several billion dollars in revenue that you, the taxpayer, will have to make up one way or another.

Does this mean President Obama is wrong to describe companies engaging in inversion as “corporate deserters”? Not really — they’re shirking their civic duty, and it doesn’t matter whether they literally move abroad or not. But apologists for inversion, who tend to claim that high taxes are driving businesses out of America, are indeed talking nonsense. These businesses aren’t moving production or jobs overseas — and they’re still earning their profits right here in the U.S.A. All they’re doing is dodging taxes on those profits.

And Congress could crack down on this tax dodge — it’s already illegal for a company to claim that its legal domicile is someplace where it has little real business, and tightening the criteria for declaring a company non-American could block many of the inversions now taking place. So is there any reason not to stop this gratuitous loss of revenue? No.

Opponents of a crackdown on inversion typically argue that instead of closing loopholes we should reform the whole system by which we tax profits, and maybe stop taxing profits altogether. They also tend to argue that taxing corporate profits hurts investment and job creation. But these are very bad arguments against ending the practice of inversion.

First of all, there are some good reasons to tax profits. In general, U.S. taxes favor unearned income from capital over earned income from wages; the corporate tax helps redress this imbalance. We could, in principle, maintain taxes on unearned income if we offset cuts in corporate taxes with substantially higher tax rates on income from capital gains and dividends — but this would be an imperfect fix, and in any case, given the state of our politics, this just isn’t going to happen.

As for reforming the system: Yes, that would be a good idea. But the case for eventual reform basically has nothing to do with the case for closing the inversion loophole right now. After all, there are big debates about the shape of reform, debates that would take years to resolve even if we didn’t have a Republican Party that reliably opposes anything the president proposes, even if it was something Republicans were for just a few years ago. Why let corporations avoid paying their fair share for years, while we wait for the logjam to break?

Finally, none of this has anything to do with investment and job creation. If and when Walgreen changes its “citizenship,” it will get to keep more of its profits — but it will have no incentive to invest those extra profits in its U.S. operations.

So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.

Monday, July 28, 2014

Thank You for Your Service: How One Company Sues Soldiers Worldwide

With stores near military bases across the country, the retailer USA Discounters offers easy credit to service members. But when those loans go bad, the company uses the local courts near its Virginia headquarters to file suits by the thousands.

Money was tight, and neither Aguirre, 21, nor his wife had much credit history as they settled into life at Fort Carson in Colorado in 2010.

That's when he saw an ad for USA Discounters, guaranteeing loan approval for service members. In military newspapers and magazines, on the radio, and on TV, the Virginia-based company's ads shout, "NO CREDIT? NEED CREDIT? NO PROBLEM!" The store was only a few miles from Fort Carson.

"We ended up getting a computer, a TV, a ring, and a washer and dryer," Aguirre said. "The only thing I really wanted was a washer and dryer."

Aguirre later learned that USA Discounters' easy lending has a flip side. Should customers fall behind, the company transforms into an efficient collection operation. And this part of its business takes place not where customers bought their appliances, but in two local courthouses just a short drive from the company's Virginia Beach headquarters.

A USA Discounters location in Norfolk, VA. The retailer has locations near military bases across the country, but uses the local courts near its Virginia headquarters to file lawsuits against service members who fall behind on their loans. (Photo by Matt McClain/ The Washington Post)

From there, USA Discounters files lawsuits against service members based anywhere in the world, no matter how much inconvenience or expense they would incur to attend a Virginia court date. Since 2006, the company has filed more than 13,470 suits and almost always wins, records show.

"They're basically ruthless," said Army Staff Sgt. David Ray, who was sued in Virginia while based in Germany over purchases he made at a store in Georgia.

Timothy Dorsey, vice president of USA Discounters, said the company provides credit to service members who would not otherwise qualify and sues only after other attempts to resolve debts have failed.

As for the company's choice of court, he said it was "for the customer's benefit." In Virginia, the company isn't required to use a lawyer to file suit. USA Discounters' savings on legal fees are passed on to the customer, he said.

"This company is committed to ensuring that the men and women who serve and sacrifice for our country are always treated with the honor and respect they deserve," Dorsey said.

The federal Servicemembers Civil Relief Act, or SCRA, was designed to give active-duty members of the armed forces every opportunity to defend themselves against lawsuits. But the law has a loophole; it doesn't address where plaintiffs can sue. That's allowed USA Discounters to sue out-of-state borrowers in Virginia, where companies can file suit as long as some aspect of the business was transacted in the state.

The company routinely argues that it meets that requirement through contract clauses that state any lawsuit will take place in Virginia. Judges have agreed.

"This looks like somebody who has really, really researched the best way to get around the entire intent of the SCRA," said John Odom, a retired Air Force judge advocate and expert on the SCRA.

For Lenders, Gaps in Federal Law Make Suing Soldiers Easy

Courts are required to appoint attorneys for service members if they are sued and can’t appear. But the law says little about what those lawyers must do. Some companies have taken advantage. More »

Once a judge awards USA Discounters a judgment, the company can begin the process of garnishing the service member's pay. USA Discounters seizes the pay of more active-duty military than any company in the country, according to Department of Defense payroll data obtained by ProPublica.

Consumer advocates say the strategy cheats service members who may have valid defenses. It's "designed to obtain default judgments against consumers without giving them any real opportunity to defend themselves," said Carolyn Carter of the National Consumer Law Center.

To investigate USA Discounters' practices, ProPublica reviewed 70 of the company's contracts for service members and non-military borrowers, all of which had been filed in court. A reporter also identified 11 recent court cases against active-duty service members to examine their treatment.

The same courts in Norfolk and Virginia Beach are favored by two similar companies headquartered in the area - Freedom Furniture and Electronics and Military Credit Services - that offer high-priced credit to military clientele. Together with USA Discounters, the three companies have filed more than 35,000 suits since 2006.

Officials with Freedom and Military Credit Services did not respond to repeated phone calls and e-mails.

USA Discounters opened its first store in 1991 in the Hampton Roads metropolitan area, where more than 70,000 military personnel are stationed.

Many sailors start their careers at the sprawling Naval Station Norfolk, "bringing their pay and their naiveté," said Dwain Alexander, a senior civilian attorney with the Navy in Norfolk.

USA Discounters, which is privately owned, now has 31 locations, including seven free-standing jewelry stores that go by the name Fletcher's Jewelers.

While the company does not exclusively lend to service members, it has a location just a short drive from each of the country's 11 largest military bases.

The company's showrooms are packed with bedroom sets, TVs and tire rims, but that's not the main draw. "You're not selling the furniture. You're not selling the appliances," said one former sales employee. "You're selling our financing program." The former employee, and others quoted in the story, spoke on condition of anonymity because they feared USA Discounters could adversely affect future employment.

Younger soldiers such as Aguirre are drawn in by the guaranteed credit - something not offered by cheaper big-box stores. "A lot of the time, this would be the first time they get a paycheck over $1,000," said a former store manager.

The company can confidently extend credit to such customers, former employees said, because the loans are almost always repaid through the military's allotment system. Part of the service member's paycheck automatically goes to the company every month.

A USA Discounters ad that ran in the May 9, 2014 edition of The 1st Infantry Division Post, a newspaper produced by Fort Riley, KS.

Despite the company's name, USA Discounters' items sometimes come at a substantial markup. An iPad Mini, for example, last year sold at USA Discounters for $699 when Apple's retail price was $329.

Dorsey, the USA Discounters executive, said the company's cost of purchasing goods was higher than big-box retailers with greater buying power. As for the add-ons, he said they are clearly disclosed as optional. The company's typical interest rate is "less than 20 percent," he said.

The final tally on the loans can be staggering for some young service members. In 2009, Army Pvt. Jeramie Mays, then 26, walked into the USA Discounters near Fort Bliss in Texas to buy a laptop before being deployed to Iraq. He chose a model that typically retailed for $650. At USA Discounters, it sold for $1,799. On top of that came $458 in add-ons. After another $561 in interest charges, Mays walked out owing $2,993 in payments over 23 months, according to a copy of his contract.

For Aguirre, it was only later, when he and his wife tried to get their finances under control, that he realized just how much he owed. The total loan amount is clearly listed on all USA Discounters' contracts, but customers often don't grasp how long they'll be paying, said a financial counselor who advises soldiers and sailors.

The military generally provides credit counseling for young service members. But for some, the allure is too great, particularly when the companies bill themselves as military friendly. "After the horse is out of the barn, there's not a lot you can do about it," said Lynn Olavarria, the financial readiness program manager at Fort Bragg in North Carolina.

Aguirre said he was told by his superiors that his struggles with debt have kept him from being promoted.

Late last year, after he had fallen far behind on his loan, he got a notice in the mail. USA Discounters was suing him in a Virginia court, more than 1,500 miles away. When he didn't show up, the company won a judgment of $8,626.

Such a demand is "abusive" and is not typically found in contracts involving consumers, said Carter of the National Consumer Law Center. The Federal Debt Collection Practices Act prohibits such suits if they are filed by a third party, such as a law firm. Because USA Discounters uses a company employee to file its debt collection suits, the law doesn't apply.

Dorsey said if customers ask to be sued elsewhere, the company will honor their requests, despite the contract. The clause is only included in the contracts of service members, according to ProPublica's review.

Gene Woolard, the chief judge of Virginia Beach General District Court, said under state law, the terms of a contract are binding.

If a defendant can't afford to travel to Virginia to contest a suit, "you can't do much about that," he said. And while he's sympathetic to debtors, Woolard said, "That's not a legal defense." Norfolk Chief Judge S. Clark Daugherty declined to respond to questions.

Court records show USA Discounters has obtained judgments in 89 percent of the suits it has filed in Norfolk's and Virginia Beach's courts since 2006.

Dorsey said the high success rate is to be expected - the customers owed money they hadn't paid. "[I]t is not surprising that they do not appear in collections proceedings in court - in any state in which we file," he said.

As for the federal law protecting active-duty service members, its requirements are easily met by USA Discounters. If a service member can't be located, the law requires a 90-day delay. Once that passes, the way is clear to obtain a judgment. If a service member doesn't appear in court, an attorney is appointed to represent the defendant. But the law does not specify what that lawyer must do.

In Virginia courts, the creditor can suggest the attorney to be appointed. USA Discounters appears to request the same lawyer for all its cases involving service members. In each of the 11 cases ProPublica examined, the court appointed Tariq Louka of Virginia Beach.

In response to written questions, Louka said that he represents "in the range of 300-400" service members each year. His primary duty, he said, is to inform his clients they have a right to request a delay, which he does by mail. "MY ONLY OBLIGATION IS TO REVIEW YOUR RESPONSE AND REQUEST AN ADDITIONAL STAY OR CONTINUANCE IF I FEEL IT IS APPROPRIATE GIVEN YOUR ANSWERS," his letters say in capital letters.

USA Discounters said that it had no business relationship with Louka or his firm.

Armed with judgments, creditors can attempt to garnish borrowers' wages or bank accounts. As of January 2014, 230 service members were involuntarily paying USA Discounters a portion of their pay, Department of Defense data shows. Altogether, those service members have paid more than $1.4 million to the company.

Next on the list of most active creditors were the two other local companies, Military Credit Services and Freedom, which together had seized the pay of 92 service members for a total of $289,000 as of January, according to the data.

USA Discounters also aggressively pursues funds in service members' bank accounts. Mays, the Army private who signed the nearly $3,000 contract for a laptop, said he initially stopped payment after the computer broke in Iraq. But other financial pressures, mainly costs associated with the care of his disabled mother, eventually made him decide to file for bankruptcy, he said.

Before he could, he was deployed to Germany and Afghanistan.

USA Discounters brought suit against him while he was in Germany. After winning a judgment, he said, the company sought to seize both his pay and funds in his credit union account. The action froze his account for several weeks, Mays said.

Mays, currently based at Joint Base Lewis-McChord in Washington state, said that for most of last January, he could not withdraw funds. "Trying to take care of two kids and my mother and myself on nothing doesn't help," he said. Around the same time, he finally filed for bankruptcy. His debt with USA Discounters was discharged last March, protecting any assets from seizure.

Dorsey of USA Discounters declined to respond without written, signed waivers from customers. Reached recently, Mays said he was in training and would not have an opportunity to provide a waiver. Other USA Discounters' customers either had their waiver rejected as incomplete by the company or could not provide one because of personal circumstances.

In Virginia, court judgments on debts can remain in force for decades. Court records show USA Discounters pursues debts for years, regardless of whether a service member has retired, or where he or she might live.

While in the Army, Sgt. LaShonda Bickford and her then-husband racked up an enormous debt with the company. After they fell behind, USA Discounters won a judgment in Virginia for $15,747. The 2011 judgment has continued to grow at the contract's interest rate of 18 percent, as Virginia law allows, and by late 2013, the debt stood at $21,291.

Every two weeks, USA Discounters gets about a quarter of her paycheck from a medical transport company, which pays Bickford about $27,000 a year. What's left barely supports Bickford, now divorced, and her 6-year-old son.

"It's a stretch to do everything I need to do every month," she said. Assuming the garnishment continues, Bickford has at least three more years of stretching ahead of her. "It's hard, it really is."

This Eye-Popping Chart Of Ex-US Companies Shows Why People Are Freaking Out About 'Tax Inversions'

A tax inversion is a corporate merger strategy that involves a company based in one country, say the U.S., acquiring another company based somewhere else, say the U.K., and following the deal moves its tax base to enjoy a lower corporate tax rate.

This year, some notable tax inversions, or proposed tax inversions, include Minnesota-based Medtronic's $43 billion deal to acquire Covidien and move its tax base to Ireland; Illinois-based AbbVie's $53 billion deal to acquire Shire and move its tax base to Jersey, an island in the English Channel; and New York-based Pfizer's failed attempt to acquire U.K.-based AstraZeneca.

Pfizer's deal to acquire AstraZeneca, which was withdrawn in May, would've been the biggest of these mergers, with the deal totaling $120 billion.

A report in The New York Times this morning said that the Obama administration is continuing to push for legislation that could retroactively strip the tax advantages achieved by companies in some of this year's deals.

And so it seems that both Congress and Wall Street have taken notice of this loophole, and one look at this chart from Goldman Sachs says it all.

Wednesday, July 23, 2014

[It is a unique time when Comcast admits things like this to convince us they are still worthy to merge with TimeWarner cable, and destroy net neutrality. However, how many times did congress deregulate cable with promises that prices would be stable only to find cable was lying? Additionally, how many times have they said they were improving customer service while this as the final result?]

Comcast admits its policies are responsible for customer harassment

"It was painful to listen to this call."

Comcast plans to reexamine the way it tries to keep subscribers from leaving its service, after a nightmarish call with one customer went viral last week and led to an outpouring of criticism. The recorded call included eight minutes of what Comcast calls a "Retention" agent attempting to argue a customer down from leaving, and Comcast now admits that much of this aggressive behavior was its own fault. "The agent on this call did a lot of what we trained him and paid him … to do," Dave Watson, Comcast's chief operating officer, writes in an internal letter that was published Monday morning, leaked to Consumerist, and verified by Ars Technica.

"I AM NOT SURPRISED THAT WE HAVE BEEN CRITICIZED."

As The Verge's Adrianne Jeffries reported last week, the agent's startling obstinacy was right in line with the ways in which Comcast motivates these employees — namely, having their pay rely on how many customers they lose and how many they keep from leaving. In its internal letter, Comcast doesn't say exactly what measures it will take to prevent situations like this in the future, and it certainly won't be wholly ending the "retention" practice — "He tried to save a customer, and that’s important," Watson writes.

But Watson does say that how retention calls are made will be examined. "We will review our training programs, we will refresh our manager on coaching for quality, and we will take a look at our incentives to ensure we are rewarding employees for the right behaviors," Watson writes. "We can, and will, do better." That final item, reviewing how Comcast motivates its retention employees, will likely be a critical one to address before attitudes like the one demonstrated in last week's call disappear, and clearly Comcast knows there's an issue: "It was painful to listen to this call," Watson writes, "and I am not surprised that we have been criticized for it."

You probably know that there has been a fair amount of media attention about a recording of a phone call between one of our Customer Account Executives (CAEs) and a Comcast customer. The call went viral on social media and generated news headlines. We have apologized to the customer privately and publicly on Comcast Voices, making it clear that we are embarrassed by the tone of the call and the lack of sensitivity to the customer’s desire to discontinue service.

I’d like to give you my thoughts on the situation.

First, let me say that while I regret that this incident occurred, the experience that this customer had is not representative of the good work that our employees are doing. We have tens of thousands of incredibly talented and passionate people interacting with our customers every day, who are respectful, courteous and resourceful.

That said, it was painful to listen to this call, and I am not surprised that we have been criticized for it. Respecting our customers is fundamental, and we fell short in this instance. I know these Retention calls are tough, and I have tremendous admiration for our Retention professionals, who make it easy for customers to choose to stay with Comcast. We have a Retention queue because we believe in our products, and because we offer a great value when customers have the right facts to choose the package that works best for them. If a customer is not fully aware of what the product offers, we ask the Retention agent to educate the customer and work with them to find the right solution.

The agent on this call did a lot of what we trained him and paid him — and thousands of other Retention agents — to do. He tried to save a customer, and that’s important, but the act of saving a customer must always be handled with the utmost respect. This situation has caused us to reexamine how we do some things to make sure that each and every one of us — from leadership to the front line — understands the balance between selling and listening. And that a great sales organization always listens to the customer, first and foremost.

When the company has moments like these, we use them as an opportunity to get better, and that’s what we’re going to do. We will review our training programs, we will refresh our manager on coaching for quality, and we will take a look at our incentives to ensure we are rewarding employees for the right behaviors. We can, and will, do better.

Thank you for your support, and many thanks to the thousands of exceptional employees all around the country who work so hard to deliver a great customer experience every day. I am confident that together we will continue to improve the experience, one customer at a time.

Paul Krugman on the Real Reason Behind the Deficit Panic and the Terrible Damage It Has Wrought AlterNet / ByJanet Allon

Paul Krugman attacks the recent, years-long panic over the national debt and deficits in today's column[3] reminding readers that this once relentless topic in the news has pretty much disappeared from view. And for good reason, Krugman says, "The whole thing turns out to have been a false alarm."

There was a time not so long ago when it was all you could read or hear about. The media and politicians of both stripes kept sounding the alarm over budget deficits and rising debts. Very serious people said the U.S. would soon turn into Greece unless something was done. Obama tried to strike a "Grand Bargain" with Congress for a balanced budget. But, of course, this Congress does not bargain—refuses to raise taxes—and no deal was struck.

Writes Krugman:

I’m not sure whether most readers realize just how thoroughly the great fiscal panic has fizzled — and the deficit scolds are, of course, still scolding. They’re even trying to spin the latest long-term projections[4] from the Congressional Budget Office — which are distinctly non-alarming — as somehow a confirmation[5] of their earlier scare tactics. So this seems like a good time to offer an update on the debt disaster that wasn’t.

About those projections: The budget office predicts that this year’s federal deficit will be just 2.8 percent of G.D.P., down from 9.8 percent in 2009. It’s true that the fact that we’re still running a deficit means federal debt in dollar terms continues to grow — but the economy is growing too, so the budget office expects the crucial ratio of debt to G.D.P. to remain more or less flat for the next decade.

Krugman goes on to responsibly inform readers that things will get more complicated after about a decade as an aging population makes increasing demands on Medicare and Social Security. But, on the plus side, healthcare costs have dramatically slowed down, which none of the doomsday prognosticators saw coming. Krugman writes:

As a result, despite aging, debt in 2039 — a quarter-century from now! — is projected to be no higher, as a percentage of G.D.P., than the debt America had at the end of World War II, or that Britain had[6] for much of the 20th century. Oh, and the budget office now expects interest rates to remain fairly low, not much higher than the economy’s rate of growth. This in turn weakens, indeed almost eliminates, the risk of a debt spiral,[7] in which the cost of servicing debt drives debt even higher.

OK, but still, Krugman allows, rising debt is not good. He also points out that it would take "surprisingly little" to avoid it.

The budget office estimates[8] that stabilizing the ratio of debt to G.D.P. at its current level would require spending cuts and/or tax hikes of 1.2 percent of G.D.P. if we started now, or 1.5 percent of G.D.P. if we waited until 2020. Politically, that would be hard given total Republican opposition to anything a Democratic president might propose, but in economic terms it would be no big deal, and wouldn’t require any fundamental change in our major social programs.

In short, the debt apocalypse has been called off.

So, having cleared up the economics, Krugman turns to the real reasons behind the fiscal panic. It is, as you might have imagined, politically and ideologically motivated. So much so that conservative thinkers like Alan Greenspan have expressed disappointment that the Greece-style crisis never arrived. Even in Europe, the crisis was dealt with rather quickly, in fact, "once the European Central Bank began doing its job, making it clear it would do 'whatever it takes' to avoid cash crises in nations that have given up their own currencies and adopted the euro," Krugman illuminates. "Did you know that Italy, which remains deep in debt and suffers much more from the burden of an aging population than we do, can now borrow long term at an interest rate[9] of only 2.78 percent? Did you know that France, which is the subject of constant negative reporting, pays only 1.57 percent?"

No, that story is not told here. Nor is the simple fact that we do not have a debt crisis. Why is that? Krugman suspects that it has served a political purpose, namely it suited those powerful conservative interests that want to dismantle Social Security and Medicare. That desire in itself is cruel and irresponsible enough, but these deficit hawks also did a lot of collateral damage along the way, distracting all of us from real problems like unemployment and decaying infractructure and climate change for far too many years.

Monday, July 21, 2014

Sunday, July 20, 2014

Comcast Corp

Among Federal Candidates, 2014 Cycle

Total: $1,986,060

METHODOLOGY: The numbers on this page are based on contributions from PACs and individuals giving $200 or more. All donations were made during the 2014 election cycle and were released by the Federal Election Commission. Figures for the current election cycle are based on data released on June 30, 2014.